Stock markets are near record levels, but some great Canadian dividend stocks still trade at discounted prices and now offer attractive yields for retirees and other self-directed Tax-Free Savings Account (TFSA) investors seeking passive income.
Bank of Nova Scotia
Bank of Nova Scotia (TSX: BNS) has a market capitalization near $83 billion. That makes it number four among the large Canadian banks based on this metric. At the time of writing, the stock trades for close to $68 per share compared to $55 at the 12-month low and $93 at one point in early 2022.
Bank of Nova Scotia has underperformed its large peers in recent years. Big bets on Peru, Chile, and Colombia have not delivered the expected returns for investors. Economic and political uncertainty in these markets have likely held back investor interest in the stock. Growth potential is significant in these countries as the middle class expands, but Bank of Nova Scotia’s new chief executive officer is focusing future growth investment on Canada, the United States, and Mexico. The South American operations could be monetized if they don’t deliver desired returns in the next few years.
Investors will need to be patient, but there is decent upside potential for the stock if the new strategy shift delivers better results. Bank of Nova Scotia is still a very profitable bank and the dividend now offers a 6.2% yield, so you get paid well to wait.
The 23% rebound in the stock price since late October is a good reminder of how quickly bank stocks can move higher when market sentiment changes. Expectations for interest rate cuts later this year have fuelled the bak rally, but this might be a bit too optimistic, so investors could see a near-term pullback. That being said, the long-term outlook for BNS stock should be positive.
Enbridge
Enbridge (TSX: ENB) is a giant in the North American energy infrastructure industry. The company moves nearly a third of the oil produced in Canada and the United States. Its extensive natural gas transmission network carries 20% of the natural gas used by American homes and businesses.
In recent years, Enbridge shifted its growth investments from major oil pipelines to export facilities, renewable energy, and natural gas utilities. The company bought an oil export terminal in Texas for US$3 billion in 2021 and has a stake in the Woodfibre liquified natural gas (LNG) export terminal being built in British Columbia. South of the border, Enbridge is in the process of closing its US$14 billion purchase of three natural gas utilities and is adding pipeline infrastructure to bring natural gas to LNG sites on the Gulf Coast.
The board raised the dividend by 3.1% for 2024, marking Enbridge’s 29th consecutive annual dividend increase. Management expects distributable cash flow to grow by about 3% per year over the medium term, so the dividend should continue to rise.
Investors who buy Enbridge at the current price can get a 7.7% dividend yield. The stock trades near $47 compared to a high of around $59 at the peak in 2022, so there is good upside potential from the current level. A drop in interest rates in Canada and the U.S. could give the stock a new tailwind.
The bottom line on top stocks for passive income
Bank of Nova Scotia and Enbridge pay attractive dividends that should continue to grow. If you have some cash to put to work in a TFSA targeting passive income, these stocks deserve to be on your radar.
